There are a lot of questions as to how a person can save their home after declaring bankruptcy and the following information will give you plenty of the clarification you’re looking for. Our home is generally one of our greatest assets, and a home is certainly not something you want to give up because you’re having problems paying debts.
Read through the following information to get a stern understanding of your options and always keep in mind that it’s advised to speak with a bankruptcy attorney if you have any more questions or for general clarification.
Before you read on, watch this quick video I put together which answers the question “I haven’t paid my mortgage in 5 months, can I keep my house?”.
- Can I keep my paid-for home in Chapter 7 bankruptcy?
- Can I keep my home in Chapter 7 bankruptcy if I’m current on my home payments?
- Can I keep my home in Chapter 7 if I’m behind on my payments?
- Can I work with my lender to modify my loan if I file bankruptcy?
- Can the bankruptcy court “cram down” an upside down home loan?
- Can the bankruptcy court strip away a second (or third) mortgage?
- Can I keep my home in Chapter 13 if I’m behind on my payments?
- My home is scheduled for foreclosure. Will filing bankruptcy stop it?
- If I rent out my house, can I keep it if I file bankruptcy?
Can I keep my paid-for home in Chapter 7 bankruptcy?
Quite possibly. Most people who are in debt are able to use federal or state law exemptions to protect equity in their homes. However, if your ownership interest in your home is more than the available exemptions, the trustee may take and sell the property to pay your creditors. You would receive the amount of your exemptions and any money that is left after paying creditors and expenses.
• Read this link for a background on how to keep creditors hands off your property through exemptions
Can I keep my home in Chapter 7 bankruptcy if I’m current on my home payments?
Yes, unless there is nonexempt equity (see above). Your Chapter 7 discharge will release you from any personal obligation to pay your mortgage. However, if you don’t make the payments, the bank may foreclose on your property. The answer is generally a reaffirmation agreement between you and the bank.
The reaffirmation agreement continues your personal obligation, and the bank agrees not to foreclose on your property. In some cases your attorney may advise you to not reaffirm your personal obligation on the note, creating a non-recourse debt (the bank cannot sue you personally if you fail to make your payments).
Can I keep my home in Chapter 7 if I’m behind on my payments?
Possibly. During the reaffirmation process the bank may agree to accept additional monthly payments or modify its terms. In some cases the bank agrees to bring the account current, or “re-age” the loan.
If you are more than one or two months behind in your payments, and your lender is unwilling to help, you should consider a Chapter 13 bankruptcy.
Can I work with my lender to modify my loan if I file bankruptcy?
Yes! However, many lenders will not agree to a loan modification after Chapter 7 bankruptcy unless you first reaffirm the debt in bankruptcy. Modification may take place during a Chapter 13 bankruptcy, but the modification must be approved by the bankruptcy court.
Can the bankruptcy court “cram down” an upside down home loan?
No it cannot. The bankruptcy court cannot force a lender to modify a home mortgage, and cannot modify the term of the home mortgage without the lender’s consent. Congress enacted a special provision of the Bankruptcy Code making it impossible for the bankruptcy court to modify a secured home mortgage.
Can the bankruptcy court strip away a second (or third) mortgage?
Possibly but it depends. Many courts routinely strip away second mortgages that are “unsecured,” which means that the value of the home is less than the amount owed by the senior liens. For example:
- Value of the home – $100,000
- First mortgage – $100,001
- Second mortgage – $50,000
The home’s value ($100,000) is less than the first mortgage ($200,000). Consequently, the second mortgage is not secured by any value of the home.
Many courts allow an unsecured lien to be stripped off and the unsecured second mortgage is discharged. Any lien stripped mortgage is only effective if the debtor completes the bankruptcy case and receives a discharge.
This process is only available in Chapter 13 bankruptcy and only approved in certain courts, although a few courts have recently ruled that lien stripping an unsecured junior (second) mortgage is allowed in Chapter 7 bankruptcy.
Can I keep my home in Chapter 13 if I’m behind on my payments?
Yes you can! In Chapter 13 bankruptcy, the debtor proposes a plan to repay his debts. The repayment of debts is subject to a priority, and secured debts (like your mortgage) are paid ahead of unsecured debts (like your credit cards or medical bills).
If you are behind on your mortgage payments, a Chapter 13 can force your lender to accept monthly payments to cure the arrearage over three to five years. Remember though that you must continue to pay your future mortgage payments in addition to the “cure” amount.
My home is scheduled for foreclosure. Will filing bankruptcy stop it?
Yes! Filing bankruptcy will immediately stop the foreclosure sale and impose an “automatic stay” that continues for the duration of your bankruptcy case, or until the bankruptcy judge modifies it (which requires notice and an opportunity for a hearing with the judge).
If I rent out my house, can I keep it if I file bankruptcy?
Possibly. You may retain the property if it has no nonexempt equity in Chapter 7. If your rental property is income producing (the rent is more than the mortgage payment and expenses) and has equity, you can probably keep it in a Chapter 13. The same rules for repaying an arrearage payments apply to rental property.
Additionally, the mortgage on rental property can be crammed down to the value of the property in a Chapter 13 filing, which is not available for an owner-occupied home. Most courts however, require the debtor to either pay off the crammed down loan during the bankruptcy, or refinance the loan to pay off the lender. All unsecured amounts are discharged at the end of the case.
In closing
If you are going to or are about to file for bankruptcy, and have concerns about keeping or losing your home, the information above can give you a general background, but it’s important to speak with a qualified attorney in order to get all the facts straight concerning your case. My goal is to help my clients keep their home and we do the utmost to ensure this is the outcome.